IDEAS home Printed from https://ideas.repec.org/a/bla/ecorec/v64y1988i4p295-306.html

Hidden Gaming in Hierarchies: Facts and Models

Author

Listed:
  • JEAN‐JACQUES LAFFONT

Abstract

We study a three‐level hierarchy in which the role of the supervisor is to transmit to the entrepreneur (the principal) information about workers' individual performances We are concerned with a form of discretion which arises from monitoring personalized incentive schemes through a supervisor, that we call hidden gaming. The supervisor can use his discretionary power to organize games unobserved by the principal which enable him to extract benefits from workers. This extortion activity decreases the level of efficiency of the organization and it is shown to subsist partly even when the principal monitors the supervisor with the best incentive scheme based on his own information. In some circumstances non‐personalized incentive schemes are optimal because of hidden gaming. The paper concludes with a discussion of possible motivations for public intervention within organizations to eliminate extortions due to hidden gaming.

Suggested Citation

  • Jean‐Jacques Laffont, 1988. "Hidden Gaming in Hierarchies: Facts and Models," The Economic Record, The Economic Society of Australia, vol. 64(4), pages 295-306, December.
    • Handle: RePEc:bla:ecorec:v:64:y:1988:i:4:p:295-306
    DOI: 10.1111/j.1475-4932.1988.tb02068.x
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/j.1475-4932.1988.tb02068.x
    Download Restriction: no
    File URL: https://libkey.io/10.1111/j.1475-4932.1988.tb02068.x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Rogerson, William P, 1985. "The First-Order Approach to Principal-Agent Problems," Econometrica, Econometric Society, vol. 53(6), pages 1357-1367, November.
    2. Bengt Holmstrom, 1979. "Moral Hazard and Observability," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 74-91, Spring.
    3. Dilip Mookherjee, 1984. "Optimal Incentive Schemes with Many Agents," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 51(3), pages 433-446.
    4. Jerry Green & Jean-Jacques Laffont, 1979. "On Coalition Incentive Compatibility," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 46(2), pages 243-254.
    5. Green, Jerry R & Stokey, Nancy L, 1983. "A Comparison of Tournaments and Contracts," Journal of Political Economy, University of Chicago Press, vol. 91(3), pages 349-364, June.
    6. Grossman, Sanford J & Hart, Oliver D, 1983. "An Analysis of the Principal-Agent Problem," Econometrica, Econometric Society, vol. 51(1), pages 7-45, January.
    7. Tirole, Jean, 1986. "Hierarchies and Bureaucracies: On the Role of Collusion in Organizations," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 2(2), pages 181-214, Fall.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. K.P. Kannan & N. Vijayamohanan Pillai, 2001. "The political economy of public utilities: A study of the power sector," Centre for Development Studies, Trivendrum Working Papers 316, Centre for Development Studies, Trivendrum, India.
    2. Breton, Albert, 1995. "Organizational hierarchies and bureaucracies: An integrative essay," European Journal of Political Economy, Elsevier, vol. 11(3), pages 411-440, September.
    3. Choe, Chongwoo, 1998. "Contract design and costly verification games," Journal of Economic Behavior & Organization, Elsevier, vol. 34(2), pages 327-340, February.
    4. Ingela Alger, 2006. "Optimal Debt Contracts when Credit Managers are (Perhaps) Corruptible," Boston College Working Papers in Economics 648, Boston College Department of Economics.
    5. Krakel, Matthias, 2003. "U-type versus J-type tournaments as alternative solutions to the unverifiability problem," Labour Economics, Elsevier, vol. 10(3), pages 359-380, June.
    6. Lorens Imhof & Matthias Kräkel, 2016. "Ex post unbalanced tournaments," RAND Journal of Economics, RAND Corporation, vol. 47(1), pages 73-98, February.
    7. Jean‐Jacques Laffont, 1989. "A Brief Overview of the Economics of Incomplete Markets," The Economic Record, The Economic Society of Australia, vol. 65(1), pages 54-65, March.
    8. McAfee, R Preston & McMillan, John, 1995. "Organizational Diseconomies of Scale," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 4(3), pages 399-426, Fall.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ewerhart, Christian, 2016. "An envelope approach to tournament design," Journal of Mathematical Economics, Elsevier, vol. 63(C), pages 1-9.
    2. repec:eee:labchp:v:3:y:1999:i:pb:p:2373-2437 is not listed on IDEAS
    3. Hernández-Santibáñez, Nicolás, 2024. "Principal-Multiagents problem under equivalent changes of measure: General study and an existence result," Stochastic Processes and their Applications, Elsevier, vol. 177(C).
    4. Zhen Wang & Tomislav Vukina, 2017. "Welfare effects of payment truncation in piece rate tournaments," Journal of Economics, Springer, vol. 120(3), pages 219-249, April.
    5. Budde, Jörg, 2009. "Information in tournaments under limited liability," Journal of Mathematical Economics, Elsevier, vol. 45(1-2), pages 59-72, January.
    6. Michael Magill & Martine Quinzii, 2006. "Common Shocks and Relative Compensation," Annals of Finance, Springer, vol. 2(4), pages 407-420, October.
    7. Kellner, Christian, 2015. "Tournaments as a response to ambiguity aversion in incentive contracts," Journal of Economic Theory, Elsevier, vol. 159(PA), pages 627-655.
    8. Arun Agrawal, 1997. "Shepherds and Their Leaders Among the Raikas of India," Journal of Theoretical Politics, , vol. 9(2), pages 235-263, April.
    9. Inés Macho-Stadler & David Pérez-Castrillo, 2018. "Moral hazard: Base models and two extensions," Chapters, in: Luis C. Corchón & Marco A. Marini (ed.), Handbook of Game Theory and Industrial Organization, Volume I, chapter 16, pages 453-485, Edward Elgar Publishing.
    10. Nafziger, Julia, 2009. "Timing of information in agency problems with hidden actions," Journal of Mathematical Economics, Elsevier, vol. 45(11), pages 751-766, December.
    11. Dubey, Pradeep & Wu, Chien-wei, 2001. "Competitive prizes: when less scrutiny induces more effort," Journal of Mathematical Economics, Elsevier, vol. 36(4), pages 311-336, December.
    12. Martin Byford, 2003. "Moral Hazard From Costless Hidden Actions," Working Papers 2003.03, School of Economics, La Trobe University.
    13. Banerjee, Swapnendu & Chakraborty, Somenath, 2025. "Individual versus Team Production with Social Preferences," MPRA Paper 125933, University Library of Munich, Germany.
    14. Nahum D. Melumad, 1989. "Asymmetric information and the termination of contracts in agencies," Contemporary Accounting Research, John Wiley & Sons, vol. 5(2), pages 733-753, March.
    15. Ghossoub, Mario, 2010. "Supplement to "Belief heterogeneity in the Arrow-Borch-Raviv insurance model"," MPRA Paper 37717, University Library of Munich, Germany, revised 22 Mar 2012.
    16. Kevin Gross & Carl T Bergstrom, 2024. "Rationalizing risk aversion in science: Why incentives to work hard clash with incentives to take risks," PLOS Biology, Public Library of Science, vol. 22(8), pages 1-15, August.
    17. Chade, Hector & Swinkels, Jeroen, 2020. "The moral hazard problem with high stakes," Journal of Economic Theory, Elsevier, vol. 187(C).
    18. Bartling, Björn & von Siemens, Ferdinand A., 2010. "The intensity of incentives in firms and markets: Moral hazard with envious agents," Labour Economics, Elsevier, vol. 17(3), pages 598-607, June.
    19. Nadide Banu Olcay, 2016. "Dynamic incentive contracts with termination threats," Review of Economic Design, Springer;Society for Economic Design, vol. 20(4), pages 255-288, December.
    20. Kim, Jaesoo, 2015. "Managerial beliefs and incentive policies," Journal of Economic Behavior & Organization, Elsevier, vol. 119(C), pages 84-95.
    21. Verbeck, Matthias, 2015. "Contracting with Researchers," VfS Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 112963, Verein für Socialpolitik / German Economic Association.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:ecorec:v:64:y:1988:i:4:p:295-306. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://edirc.repec.org/data/esausea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.